AMD 2009 Annual Report Download - page 104

included in the caption “Impairment of goodwill and acquired intangible assets” in the Company’s 2008
consolidated statement of operations. The impairment charge was determined by comparing the carrying value of
goodwill assigned to the reporting units within these segments as of November 22, 2008 with the implied fair
value of the goodwill. The Company considered both the income and market approaches in determining the
implied fair value of the goodwill. Also, the Company chose the same approach that it used during the 2007
impairment analysis, which required estimates of future operating results and cash flows of each of the reporting
units discounted using estimated discount rates ranging from 19 percent to 25 percent. The estimates of future
operating results and cash flows were principally derived from an updated long-term financial outlook in light of
fourth quarter market conditions and the challenging economic outlook. The conclusion was also due to the
deterioration in the price of the Company’s common stock and the resulting reduced market capitalization.
The outcome of the Company’s 2008 goodwill impairment analysis indicated that the carrying amount of
certain acquisition-related intangible assets or asset groups may not be recoverable. The Company assessed the
recoverability of the acquisition-related intangible assets or asset groups, as appropriate, by determining whether
the unamortized balances could be recovered through undiscounted future net cash flows. The Company
determined that certain of the acquisition-related intangible assets associated with its Computing Solutions and
Graphics segments and the Handheld business unit were impaired primarily due to the revised lower revenue
forecasts associated with the products incorporating the developed product technology, customer relationships,
and the trademarks and trade names. The Company measured the amount of impairment by calculating the
amount by which the carrying value of the assets exceeded their estimated fair values, which were based on
projected discounted future net cash flows. As a result of this impairment analysis, the Company recorded an
impairment charge of approximately $62 million, which is included in the caption “Impairment of goodwill and
acquired intangible assets” in its 2008 consolidated statement of operations.
2007 Impairment
In the fourth quarter of 2007, pursuant to its accounting policy, the Company performed an annual
impairment test of goodwill. As a result of this analysis, the Company concluded that the carrying amounts of
goodwill included in its Graphics and former Consumer Electronics segments exceeded their implied fair values
and recorded an impairment charge of approximately $1.26 billion, of which $913 million is included in the
caption “Impairment of goodwill and acquired intangible assets” and $346 million is included in the caption
“Income (loss) from discontinued operations, net of tax” in its 2007 consolidated statement of operations. The
impairment charge was determined by comparing the carrying value of goodwill assigned to the Company’s
reporting units within these segments as of October 1, 2007, with the implied fair value of the goodwill. The
Company considered both the income and market approaches in determining the implied fair value of the
goodwill. While market valuation data for comparable companies was gathered and analyzed, the Company
concluded that there was not sufficient comparability between the peer groups and the specific reporting units to
allow for the derivation of reliable indications of value using a market approach and, therefore, the Company
ultimately employed the income approach which requires estimates of future operating results and cash flows of
each of the reporting units discounted using estimated discount rates ranging from 13 percent to 15 percent. The
estimates of future operating results and cash flows were principally derived from an updated long-term financial
forecast, which was developed as part of the Company’s strategic planning cycle conducted annually during the
latter part of the third quarter of 2007. The decline in the implied fair value of the goodwill and resulting
impairment charge was primarily driven by the updated long-term financial forecasts, which showed lower
estimated near-term and longer-term profitability compared to estimates developed at the time of the completion
of the ATI acquisition
The updated financial forecast for the Graphics segment was lower primarily because of intense pricing
competition with its primary competitor throughout 2007 which required an increase in the Company’s sales and
marketing activities to a greater extent than previously forecasted. In addition, the Company had invested in the
development of new graphics technologies to a greater extent than previously forecasted, which resulted in an
increase in research and development expenses. Also the Company’s primary microprocessor competitor
announced its intention to develop a discrete graphics product. These factors resulted in lower near-term and
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